No signs of economy overheating: Chidambaram

The Finance Minister, Mr P. Chidambaram, on Thursday said that there were no signs of the economy overheating and that the Reserve Bank of India's (RBI) move to hike repo rate by 0.25 per cent was "well intended".

"I don't believe there is overheating (in the economy). The RBI has only cautioned. And if they had not taken action, I think some sectors may have shown some signs of overheating," Mr Chidambaram told presspersons here on Thursday. He said the repo rate hike was intended at moderating credit growth in some sectors, re-balance credit portfolios of banks and exercise prudence.

The RBI had on October 31, in the Credit Policy announcement, raised the repo rate by 25 basis points to 7.25 per cent. Repo rate is the rate at which the RBI lends short-term funds to banks.

After announcing the busy season Credit Policy, the RBI Governor, Dr Y.V. Reddy, had said that the repo rate hike was a clear signal to banks that getting liquidity from the central bank could be an expensive affair. Meanwhile, Dr Ashok Lahiri, Chief Economic Advisor in the Union Finance Ministry, said that the RBI's Credit Policy was "very good" and that it balances the need for maintaining growth momentum and containing inflationary pressures.

Dr Lahiri also told presspersons on the sidelines of an insurance conference here on Thursday that the repo rate hike was a signal to banks to manage their liquidity properly.

(This article was published in the Business Line print edition dated November 3, 2006)

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